Are cashbacks by cos like Paytm and Mobikwik predatory pricing? CCI to decide

India’s competition watchdog has formed an in-house expert panel to ascertain whether the cashback incentives offered by digital wallets and e-tailers on recharges, bill payments or purchase of other products constitute predatory pricing.

Digital wallets and e-commerce companies such as Paytm and Mobikwik often offer cashback incentives to users making payments through them. “A panel has been formed by the Competition Commission of India (CCI) that is studying the cashback model being used by online payment platforms, e-commerce companies and also several banks,” a senior CCI official told ET, requesting not to be identified.

The official said the move follows several complaints received by the commission on such offers. “This is a new market that we need to understand since we get a lot of complaints related to it,” he said. The panel is likely to complete its study and give its opinion within a couple of months.

“It has to be ascertained whether the cashback offers are being offered to create a new market by incentivising customers or to disrupt the competition in the existing market through predatory pricing,” the official said.

Predatory pricing is an anti-competitive practice under India’s competition laws. It refers to a situation where a firm charges price below cost of production with the intent of forcing the competition to either immediately exit the market or exit after facing losses for a while. Once the competition exits the market, the predatory firm raises prices.

Mobile wallet payments grew rapidly to more than Rs 20,000 crore in 2015-16 from just over Rs 2,000 crore in 2013-14. Several bricks-and-mortar retailers have complained to the CCI many times about the alleged practice of predatory pricing by the online market places.

“The concept of cashback prima facie looks like a case of predatory pricing and should be investigated by the commission. Predatory pricing itself is a very complicated process and commissions across the world are looking into it,” said KK Sharma, former head of the CCI’s Merger Control and Anti-Trust Divisions.

The All India Online Vendors Association also alleged that the cashback incentives offered by e-commerce companies and payment banks were against the recently released foreign direct investment policy.